Video: Federal Tax Withholdings

In this lesson, delve into the intricacies of federal tax withholdings as Nick Palazzolo, CPA, sheds light on the crucial deductions from employees' paychecks. Get a handle on the constant percentages of Social Security and Medicare tax—elements of the immutable FICA—and learn how these taxes, full of nuances and caps, impact take-home pay. Discover how federal income tax is a more variable tale, one that hinges on earnings and filing status. Moreover, Nick unpacks scenarios involving excess FICA withholdings, guiding through the mechanisms for reclaiming any overpayments—whether credited back by employers or reconciled during tax return filings. This foundational session equips with the essentials of navigating federal withholdings, setting the stage for mastering the payroll landscape encountered in the professional journey.

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Video Transcript

Instructor: Nick Palazzolo

Nick Palazzolo is head instructor of ExamPrep.ai CPA Review. Nick's teaching style is engaging & upbeat, combining practical Big 4 tax & assurance expertise with years of 1-on-1 coaching. His lessons are concise and emphasize what you need to know to pass. Whether you're a recent grad or working full-time, we’re confident you can conquer your CPA exams with Nick’s review.

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Talking about federal withholdings. Now, we will have a specific slide on the FICA withholding, but here, these are all the types of withholdings. And if you're ever forgetting what the withholdings could be, we'll take a look at your W-2, take a look at your paycheck, and where's the money going? Well, it's going to be federal income tax. That's the big one. Then you've got your Social Security tax and your Medicare tax. Now, these percentages, these will never change. I mean, at least, we'll probably hear about it if they change. Social Security tax is going to be 6.2% of the employee's gross income, and the Medicare tax, 1.45% of the employee's gross income. Now, federal withholdings from an employee's paycheck typically include federal income tax, Social Security tax, and Medicare tax. We do not care about state stuff in this exam. We'll mention it here. I'll mention it a bunch of times throughout the exam. Why is that? Well, there are 50 beautiful states and a few other municipalities in Washington, D.C., Puerto Rico, those great places in the U.S. But yeah, there's too many states, so we're not going to worry about them. State withholdings, all that, it does exist, but we're very much focused on federal taxation for this entire exam. So yeah, you will see a deduction for your state, but we're not going to worry about that in here. Now, the federal income tax, this percentage varies based on your taxable income and your filing status. Generally, you're going to fill out your I-9, you're going to give them the W-4, all the information when you sign up for your job. You're going to say how much you want withheld, if you're single, married, filing jointly, all that good stuff. These other

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